LLC’s, Corporations, And
Other Business Structures - Part I:
Written By New York Entertainment Lawyer And LLC Counsel
John J. Tormey III, Esq.
This article is not intended to, and does not constitute, legal advice with respect to your particular situation and fact pattern. Do secure counsel promptly, if you see any legal issue looming on the horizon which may affect your career or your rights. What applies in one context, may not apply to the next one. Make sure that you seek individualized legal advice as to any important matter pertaining to your career or your rights generally.
While many artists continue to do business as individuals,
there often comes a point in their career when it makes sense to ascend
to the next level - to create a business, to create a company, usually
in this day and age a limited liability company (LLC) or a corporation,
with its own name and identity. Sometimes this step is prompted by the
need to hire employees
or independent contractors,
but not always. Sometimes the business principal simply wants to try
to insulate himself or herself from potential personal liability. In
the fields of arts and entertainment, the process of forming and filing
a new entity like a corporation or limited liability company (LLC) is
often handled by and through
a music lawyer, film
lawyer, TV lawyer, publishing
lawyer, and is often the first reason for which a new client seeks
counsel. If you are an
artist who has reached that point in your career, or even if you have
already surpassed it and want to revisit your decision, then this article
is for you. I am a New York entertainment
lawyer who regularly handles corporate
and LLC matters and
my contact information appears below.
1. Choosing a Name For A New Business
If one is choosing a structure for a small business, there are a number of different types of business entities that can be formed. At minimum, one likely will need to assess the relative merits of the subchapter-”S” corporation (“S-corp”); the subchapter-“C” corporation (“C-corp”); and the limited liability company (“LLC”). This choice will be described in more detail, below, and in Part II and Part II of this Article. But the first issues one should address, also typically addressed with and through one’s entertainment lawyer, are the trademark considerations which may arise as a result of the chosen name for the limited liability company (LLC), corporation, or other form of company.
“Fanciful” (i.e., fictitious) new business
names for a limited liability company (LLC), corporation, or other form
of entity should be searched as trademarks,
especially in fields like
film, music, and
name recognition can be so important. Entertainment
lawyers will routinely search and then issue opinions on proposed
trademarks of properties for clients, including trademark-searches on
LLC names and corporation names themselves. Why go through this process?
Because a new LLC, corporation, or other form of business needs to confirm
that no other businesses have prior rights or viable claims to its newly-proposed
name (or a name substantially similar to its newly-proposed name). In
any event, one may be barred from registering a corporate, LLC, or other
business name, if someone else has already registered the same name
in the jurisdiction in which the entity-filing is intended. Moreover,
if one’s business is intended to ultimately be national or international
in scope, as is often the case in entertainment-related and Internet-related
LLC’s and corporations, a careful trademark search conducted through
one’s entertainment lawyer becomes all the more important. One
doesn’t want to invest sweat and equity in a fanciful business
name, only to later find out that he or she is legally prevented from
using it, or is unable to stop others from infringing on the newly-chosen
business name. These types of conflicts are more prominent these days
given the ease of publishing one’s own business name digitally
on the Internet in a variety of fashions.
Principal owners of a new business do sometimes elect to incorporate or form a limited liability company (LLC) under their own legal and given name (i.e., “John Doe, Inc., or “John Doe LLC”), instead of a fanciful name, in the hopes of saving money that they would otherwise spend on a trademark search through an entertainment lawyer. But there are at least two potential drawbacks to doing so:
Incorporating or forming a limited liability company (LLC) under one’s given name often makes it more difficult to later successfully develop a separate and distinct brand identity for one’s products and services.
Incorporating or forming a limited liability company (LLC)
under one’s given name (or even a variant thereof) marginally
increases the chances that a court may be inclined to let a plaintiff
“pierce” one’s “corporate veil” in a litigation,
if the “corporate veil” issue ever arises. “Piercing”
means “finding individual economic liability” on the part
of the owner/principal. The plaintiff’s argument would be that
a self-titled corporation (or LLC) is more likely to be the “alter
ego” of its individual principal. Now, although the odds of one’s
“veil” being “pierced” may not be that high
- assuming that the business owner observes all other corporate or LLC
filings and formalities up until that point - the risk of individual
liability is still worth mentioning. After all, for many people, the
avoidance of “personal liability” and the avoidance of possible
“veil piercing” is the whole reason for their incorporating
or forming an LLC in the first instance.
What do I mean by “personal liability”? That is probably the most important legal concept that a limited liability company (LLC) owner, corporation owner, or other form of business owner will ever seek to avoid! Please read the next installment of this article.
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My law practice as an entertainment attorney includes incorporations and the formation of limited liability companies (LLC’s), as well as work relating to copyrights, trademarks and service marks, and contracts, as relating to film, music, television, publishing, and other businesses, media, and art forms. If you have questions about legal issues which affect your career, and require representation, please contact me: